Kenya: Bank forex deposits rise by Sh2.6 billion in July

Foreign currency deposits held by Kenyans in local banks eased by Sh2.6 billion in July, signaling rising usage by importers, who had raised their holdings in June.

The value of the hard currency deposits stood at Sh757.73 billion at the end of July, Kenya National Bureau of Statistics (KNBS) data shows, down from Sh760.34 billion in June.

The modest dip coincided with a 10.6 percent month-on-month increase in Kenya’s import bill, which stood at Sh177.2 billion in July compared to Sh160.2 billion in June.

The higher import bill was driven mainly by increased cost and volumes of fuel, industrial goods, and machinery.

Without the higher import costs, the deposits would likely have continued to rise, given that July’s diaspora remittances of Sh37.1 billion ($336.7 million) were 9.1 percent higher compared to June, and the shilling weakened during the month to exchange at an average of 108.15 compared to June’s average of 107.80 units to the dollar.

The hard currency deposits have generally remained elevated since the Covid pandemic first hit Kenya 18 months ago, due to hedging against potential shilling weakness and reduced expenditure on imports as the economic activity suffered a dip.

The deposits have tended to spike whenever the government announces tougher restriction measures to combat the Covid virus, peaking in March this year at an all-time high of Sh779.7 billion.

A weaker shilling has also helped increase the local currency value of these deposits.

They had gone up by Sh15 billion in June, which was attributed by analysts to concerns over the spread of the Covid Delta variant and deposit mobilisation as the second quarter ended.

The CBK had said earlier that bankers and firms had informed it via a poll that investors were hoarding dollars for speculation purposes in the wake of forecasts showing that the shilling would remain weak against the US currency.

The Covid variant concerns have however eased somewhat with the country getting higher supplies of various vaccines, and the positivity rate dropping below 10 percent in recent days.